Question 1

Which of the following questions is most likely to bring forth the same answer from each of 100 economists:

Accepted Answer

A)  What role should government play in the economy? 
B)  How does the Fed go about changing the money supply? 
C)  Is it better to use monetary or fiscal policy to stabilize the economy at the current time? 
D)  What are the effects on the economy of expansionary fiscal policy? 
E)  b and d 
A)  What role should government play in the economy? 
B)  How does the Fed go about changing the money supply? 
C)  Is it better to use monetary or fiscal policy to stabilize the economy at the current time? 
D)  What are the effects on the economy of expansionary fiscal policy? 
E)  b and d

Question 2

A $30 billion increase in government spending increases Real GDP by $150 billion.Assuming a constant price level,what does the government spending multiplier equal?

Accepted Answer

A)  0.20 
B)  120 
C)  5 
D)  180 
A)  0.20 
B)  120 
C)  5 
D)  180

Question 3

Economists who believe in complete crowding out would argue that

Accepted Answer

A)  jobs created or saved because of increased government spending will be matched by an equal number of jobs created by an increase in private sector spending. 
B)  jobs created or saved because of increased government spending will be completely offset by jobs destroyed by a decline in private sector spending. 
C)  government policies intended to stimulate aggregate demand will be completely ineffective. 
D)  government policies intended to stimulate aggregate demand will tend to be effective. 
E)  a and c 
A)  jobs created or saved because of increased government spending will be matched by an equal number of jobs created by an increase in private sector spending. 
B)  jobs created or saved because of increased government spending will be completely offset by jobs destroyed by a decline in private sector spending. 
C)  government policies intended to stimulate aggregate demand will be completely ineffective. 
D)  government policies intended to stimulate aggregate demand will tend to be effective. 
E)  a and c

Question 4

Which of the following is true?

Accepted Answer

A)  When income tax rates fall,it is possible for tax revenues to rise. 
B)  When income tax rates fall,it is possible for tax revenues to fall. 
C)  All economists agree that a monetary rule is preferred to discretionary Fed policy. 
D)  All economists agree that discretionary Fed policy is preferred to a monetary rule. 
E)  a and b 
A)  When income tax rates fall,it is possible for tax revenues to rise. 
B)  When income tax rates fall,it is possible for tax revenues to fall. 
C)  All economists agree that a monetary rule is preferred to discretionary Fed policy. 
D)  All economists agree that discretionary Fed policy is preferred to a monetary rule. 
E)  a and b

Question 5

Economist A believes the economy is self-regulating.Economist B believes that wages and prices are inflexible downward.Economist C believes that the AS curve is vertical.Economist D believes that crowding out is likely to be complete.Which economist is most likely to advocate for expansionary fiscal policy in the in the form of greater government spending to remove an economy from a recessionary gap?

Accepted Answer

A)  Economist A 
B)  Economist B 
C)  Economist C 
D)  Economist D 
A)  Economist A 
B)  Economist B 
C)  Economist C 
D)  Economist D

Question 6

It is a fact that the government spending multiplier is always greater than the tax multiplier.

Accepted Answer

A) True 
 B)False

Question 7

Some economists believe that corporate bailouts are bad for the economy because they ________________ gains and they _____________ the costs,which ultimately lead to _____________ companies needing to be bailed out.

Accepted Answer

A)  privatize;socialize;fewer 
B)  socialize;privatize;fewer 
C)  privatize;socialize;more 
D)  socialize;privatize;more 
A)  privatize;socialize;fewer 
B)  socialize;privatize;fewer 
C)  privatize;socialize;more 
D)  socialize;privatize;more

Question 8

Suppose the government spending multiplier is 1.5.This means that

Accepted Answer

A)  a $1 decline in government spending will raise Real GDP by $1.50. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $1.50. 
C)  a $1 rise in government spending will raise investment spending by $1.50. 
D)  a $1 rise in government spending will change interest rates by 1.50 times what it was before the $1 rise in government spending. 
E)  none of the above 
A)  a $1 decline in government spending will raise Real GDP by $1.50. 
B)  a $1 rise in government spending will raise both total spending and Real GDP (assuming prices are constant)by $1.50. 
C)  a $1 rise in government spending will raise investment spending by $1.50. 
D)  a $1 rise in government spending will change interest rates by 1.50 times what it was before the $1 rise in government spending. 
E)  none of the above

Question 9

In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be ____________________.If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _____________________.

Accepted Answer

A)  upward-sloping;vertical 
B)  upward-sloping;horizontal 
C)  downward sloping;vertical 
D)  vertical;upward-sloping 
E)  vertical;downward-sloping 
A)  upward-sloping;vertical 
B)  upward-sloping;horizontal 
C)  downward sloping;vertical 
D)  vertical;upward-sloping 
E)  vertical;downward-sloping

Question 10

"We lose more by letting the company fail than by having the government save it." This was most likely said by an economist who believes that

Accepted Answer

A)  crowding out is complete. 
B)  bailouts are sometimes necessary. 
C)  the tax multiplier is larger than the government spending multiplier. 
D)  the AS curve is vertical. 
E)  the AS curve is upward-sloping. 
A)  crowding out is complete. 
B)  bailouts are sometimes necessary. 
C)  the tax multiplier is larger than the government spending multiplier. 
D)  the AS curve is vertical. 
E)  the AS curve is upward-sloping.

Question 11

Those economists who argue that a significant amount of crowding out exists believe that the impact of expansionary fiscal policy will be _________________ by the crowding out.Their reasoning is that if the government increases purchases,and finances that spending by borrowing money,spending in the private sector will _______________,leading ultimately to _____________ in aggregate demand.

Accepted Answer

A)  strengthened;fall;little or no change 
B)  strengthened;rise;a significant rise 
C)  weakened;fall;little or no change 
D)  weakened;rise;a significant rise 
A)  strengthened;fall;little or no change 
B)  strengthened;rise;a significant rise 
C)  weakened;fall;little or no change 
D)  weakened;rise;a significant rise

Question 12

The Taylor rule is an example of a rule-based monetary policy system.

Accepted Answer

A) True 
 B)False

Question 13

"The only thing that results from expansionary demand-side fiscal policy is that the price level will rise." The economist who said this most likely believes that

Accepted Answer

A)  there is likely to be a lot of crowding out if government spending rises. 
B)  the AS curve is vertical. 
C)  there is unlikely to be much crowding out if government spending rises. 
D)  investment is interest inelastic. 
E)  b and c 
A)  there is likely to be a lot of crowding out if government spending rises. 
B)  the AS curve is vertical. 
C)  there is unlikely to be much crowding out if government spending rises. 
D)  investment is interest inelastic. 
E)  b and c

Question 14

The stimulus bill passed by the U.S.Congress in February 2009 is an example of expansionary monetary policy.

Accepted Answer

A) True 
 B)False

Question 15

Which U.S.president said,"Give me a one-handed economist.All my economists say 'On the one hand,and then on the other hand.'"?

Accepted Answer

A)  Barack Obama 
B)  Bill Clinton 
C)  Ronald Reagan 
D)  Dwight D.Eisenhower 
E)  Harry S.Truman 
A)  Barack Obama 
B)  Bill Clinton 
C)  Ronald Reagan 
D)  Dwight D.Eisenhower 
E)  Harry S.Truman

Question 16

Which of the following is false?

Accepted Answer

A)  Economists who advocate discretionary monetary policy argue that it is more likely to achieve the desired economic results because the monetary authority has the flexibility to shape the best monetary policy to the existing circumstances. 
B)  Here is an example of zero crowding out: The government spends $100 more and the private sector doesn't spend any less. 
C)  Here is an example of complete crowding out: The government spends $100 more and the private sector spends $100 less. 
D)  Not all economists believe that rule-based monetary policy is preferable to discretionary monetary policy. 
E)  none of the above 
A)  Economists who advocate discretionary monetary policy argue that it is more likely to achieve the desired economic results because the monetary authority has the flexibility to shape the best monetary policy to the existing circumstances. 
B)  Here is an example of zero crowding out: The government spends $100 more and the private sector doesn't spend any less. 
C)  Here is an example of complete crowding out: The government spends $100 more and the private sector spends $100 less. 
D)  Not all economists believe that rule-based monetary policy is preferable to discretionary monetary policy. 
E)  none of the above

Question 17

"Expansionary fiscal policy is needed to increase Real GDP --- at least in the short run." The economist who said this most likely believes that

Accepted Answer

A)  the tax multiplier is larger than the government spending multiplier. 
B)  the AS curve is vertical. 
C)  there will be a great deal of crowding out connected with a rise in government spending. 
D)  the AS curve is upward-sloping. 
E)  c and d 
A)  the tax multiplier is larger than the government spending multiplier. 
B)  the AS curve is vertical. 
C)  there will be a great deal of crowding out connected with a rise in government spending. 
D)  the AS curve is upward-sloping. 
E)  c and d

Question 18

"It matters how the government spends any extra dollars." The economist who said this most likely believes that

Accepted Answer

A)  a dollar spent on one government project could raise Real GDP more than a dollar spent on some alternative government project. 
B)  the AS curve is upward-sloping. 
C)  the tax multiplier is larger than the government spending multiplier. 
D)  government should increase in both size and scope. 
E)  none of the above 
A)  a dollar spent on one government project could raise Real GDP more than a dollar spent on some alternative government project. 
B)  the AS curve is upward-sloping. 
C)  the tax multiplier is larger than the government spending multiplier. 
D)  government should increase in both size and scope. 
E)  none of the above

Question 19

Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.

Accepted Answer

Some economists believe that the AS curv

Question 20

If income tax rates are cut,the size of the budget deficit will necessarily increase.

Accepted Answer

A) True 
 B)False

Exam 19: Debates in Macroeconomics Over the Role and Effects of Government

Which of the following questions is most likely to bring forth the same answer from each of 100 economists:

A $30 billion increase in government spending increases Real GDP by $150 billion.Assuming a constant price level,what does the government spending multiplier equal?

Economists who believe in complete crowding out would argue that

Which of the following is true?

It is a fact that the government spending multiplier is always greater than the tax multiplier.

Some economists believe that corporate bailouts are bad for the economy because they ________________ gains and they _____________ the costs,which ultimately lead to _____________ companies needing to be bailed out.

Suppose the government spending multiplier is 1.5.This means that

In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be ____________________.If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _____________________.

"We lose more by letting the company fail than by having the government save it." This was most likely said by an economist who believes that

The Taylor rule is an example of a rule-based monetary policy system.

"The only thing that results from expansionary demand-side fiscal policy is that the price level will rise." The economist who said this most likely believes that

The stimulus bill passed by the U.S.Congress in February 2009 is an example of expansionary monetary policy.

Which U.S.president said,"Give me a one-handed economist.All my economists say 'On the one hand,and then on the other hand.'"?

Which of the following is false?

"Expansionary fiscal policy is needed to increase Real GDP --- at least in the short run." The economist who said this most likely believes that

"It matters how the government spends any extra dollars." The economist who said this most likely believes that

Explain how the different views of the shape of the aggregate supply (AS)curve influence economists' perception of the impact that government actions have on Real GDP in the short run.

If income tax rates are cut,the size of the budget deficit will necessarily increase.

What Economics Is About

Production Possibilities Frontier Framework

Supply and Demand: Theory

Prices: Free, controlled, and Relative

Supply,demand,and Price: Applications

Macroeconomic Measurements, Prices and Unemployment

Macroeconomic Measurements, Gdp and Real Gdp

Aggregate Demand and Aggregate Supply

Classical Macroeconomics and the Self-Regulating Economy

Keynesian Macroeconomics and Economic Instability: a Critique of the Self-Regulating Economy

Fiscal Policy and the Federal Budget

Money,banking,and the Financial System

The Federal Reserve System

Money and the Economy

Monetary Policy

Expectations Theory and the Economy

Economic Growth: Resources, technology, ideas, and Institutions

The Financial Crisis of 2007-2009

Public Choice and Special-Interest-Group Politics

Building Theories to Explain Everyday Life: From Observations to Questions to Theories to Predictions

International Trade

International Finance

Globalization and International Impacts on the Economy

The Economic Case for and Against Government: Five Topics Considered

Stocks, bonds, futures, and Options

Agriculture: Problems, policies, and Unintended Effects

Filters

Some economists believe that corporate bailouts are bad for the economy because they __________ gains and they _ the costs,which ultimately lead to _______ companies needing to be bailed out.

In order for an increase in aggregate demand to raise Real GDP and the price level,the aggregate supply curve must be .If an increase in aggregate demand raises the price level but leaves Real GDP unchanged,the aggregate supply curve must be _.